Revel's time in Chapter 11 bankruptcy should be quick and clean, analysts say

Revel casino in Atlantic City is seeking to restructure its enormous debt through a prepackaged Chapter 11 bankruptcy filing. (The Press of Atlantic City / Ben Fogletto)

Revel will follow a route that should allow the casino to avoid an expensive, drawn-out “bloodbath” with creditors as it seeks to restructure its enormous debt load in bankruptcy court, legal experts say.

A “prepackaged” Chapter 11 filing, which Revel plans to do in March, means the $2.4 billion megaresort has already worked out an agreement with its major creditors on a debt restructuring, bankruptcy attorneys explained.

Barring any surprises, Revel should breeze through court without the huge legal expenses and uncertainty that typically accompany hostile bankruptcy proceedings. In some cases, prepackaged bankruptcies can shave months, if not years, off the entire process, New Orleans bankruptcy attorney Rudy Cerone said.

“In a prepack, everybody can see it coming, so it’s no surprise. Negotiations occur before the filing,” said Cerone, who has worked on a half-dozen previous casino bankruptcies, including Harrah’s New Orleans.

Cerone expects Revel to emerge from bankruptcy much stronger, noting that other casinos have gone through the same process to clean up their balance sheets. The financially troubled casino plans to erase about $1 billion of debt in a restructuring deal that will give creditors an ownership stake.

“Virtually all of the casinos I have been personally involved with have gotten stronger in the Chapter 11s they have been through,” Cerone said.

On Tuesday, Revel announced that it has reached agreement with a majority of its lenders to restructure its nearly $1.5 billion in debt and pump new financing into the casino as it moves through bankruptcy.

Edward Neiger, a New York bankruptcy attorney, said there should be little drama shadowing Revel’s prepackaged deal. He noted that Revel’s agreement with the majority of lenders ensures there are already enough votes to get the plan of reorganization approved in court.

“It’s almost a fait accompli, unless something comes out of left field,” said Neiger, who was part of the 2010 bankruptcy case for the Trump Entertainment Resorts Inc. casinos in Atlantic City.

Neiger said a prepackaged bankruptcy will save creditors from going through lengthy foreclosure proceedings in state court to take control of Revel.

“They are using bankruptcy to facilitate this matter,” he said. “The Revel casino is another example of how the secured creditors could avoid fighting it out in the state courts in a two- or three-year bloodbath.”

However, secured creditors holding Revel’s loans will not walk away unscathed. Neiger said they are watching their loans shrink dramatically and are becoming owners of an ailing property.

“They’re going to take a huge haircut because they are turning a billion dollars of debt into equity in a casino that has a bad track record,” Neiger said. “They essentially gambled on making this loan, and they lost, ironically.”

Revel’s proposed new ownership structure will not be clear until the bankruptcy filing is made. Major creditors that hold Revel’s loans include J.P. Morgan and funds managed by Capital Research and Management Co. and Canyon Capital Advisors, documents show.

Smaller, unsecured creditors that will be involved in the bankruptcy include Revel’s vendors, suppliers and contractors. Although the unsecured creditors won’t be given an ownership stake in the restructured casino, Revel will have to settle with them, too, attorneys said.

“Bankruptcy is a better or an additional tool for dealing with lienholders, contractors and unsecured creditors,” Neiger said. “Typically in bankruptcy, they settle for less. But there’s no hard or fast rule.”

Cerone cautioned that Revel must treat its vendors fairly because of the key role they play in the casino’s operation.

“In the casino business, you want to take care of the vendors, because you can’t operate casinos without gambling chips and cards,” he said.

Last fall, Revel faced about $37.6 million in construction liens filed by more than 40 contractors that helped build the casino. At that time, contractors complained that Revel was months late in paying its bills. Revel had pledged to pay contractors everything they were owed, once it completed a final audit of the construction work.

“We have settled approximately 80 percent of the value of nondisputed liens and are in the process of resolving the liens of the remaining contractors, less than a dozen,” Revel CEO Kevin DeSanctis said in a statement. “We are in active discussions and negotiations with these contractors, and hope to complete this process soon.”

Documents posted on the Atlantic County Clerk’s Office website show that no new construction liens have been filed against Revel since December. The documents also show that contractors have been discharging their liens in the past two months, indicating they have been paid.

Mike Irvin, an Egg Harbor Township artist, said he has waited a year for Revel to pay his final bill. So far, he has been paid $22,000, but Revel still owes him $12,500, he said. Irvin painted erotic murals for the burlesque club inside Revel.

Irvin, 48, owner of Irvin Studios, Murals and Fine Art, said he has been struggling financially — at times having to borrow money to keep his small business afloat — because Revel has not finished paying him. He said he has repeatedly asked for his bill to be paid, without success. Now, he fears Revel’s bout with bankruptcy will make it more difficult for him to receive final payment.

“It’s just amazing how they’re building this thing, how they’re using New Jersey workers and how they have the support of the governor, but they’re not paying their bills,” Irvin said. “I’m having to borrow money. I almost lost my house. I owe my suppliers. Everything had to come out of my own pocket.”

DeSanctis said in his statement that Revel’s records indicate Irvin’s company was paid in full May 23, 2012.

Revel is hardly alone among Atlantic City casinos in seeking bankruptcy protection. The Trump casinos have been through the bankruptcy process three times since the early 1990s. Resorts Casino Hotel reorganized in bankruptcy twice, in 1990 and 1994. Tropicana Casino and Resort was sold to billionaire investor Carl Icahn in a 2009 bankruptcy auction, although he did not officially take ownership until 2010.

Revel says it hopes to wrap up its bankruptcy by early summer, a date both Cerone and Neiger agreed is realistic. Neiger said he knows of other prepackaged bankruptcies that took just 45 days. Other prepackaged Atlantic City casino bankruptcy cases sailed through the courts in less than three months.

For instance, the then-three Trump casinos each took less than 60 days when they separately went through prepackaged deals in 1991 and 1992. Resorts Casino Hotel’s prepackaged bankruptcy in 1994 ended in just 32 days.

Other casino bankruptcies that were not prepackaged deals took much longer. The old Atlantis Casino Hotel was in bankruptcy from 1985 to 1988, a total of 34 months. In 1989, the distressed Atlantis became the first Atlantic City casino to close. More recently, Trump Entertainment took more than a year to complete a bankruptcy sale of its casinos in 2010.